Spain, Cyprus Looking for Outside Aid for Ailing Banks

Posted June 25th, 2012 at 10:05 am (UTC-5)
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Spain — one of the euro currency bloc's biggest economies — formally sought a bailout for its financially troubled banking system Monday. Meanwhile, Cyprus — one of the eurozone's smallest countries — is also looking for help for its distressed banks.

The twin bids in Madrid and Nicosia for outside assistance for their ailing banks kicked off a week of uncertainty in the 17-nation currency union as the continent's leaders head to a European Union summit in Brussels on Thursday and Friday.

Spain asked for up to $125 billion rescue for banks left holding bad real estate loans. But Spanish Foreign Minister Jose Manuel Margallo said details of the bailout would be determined later, including whether the loans would have to be paid by the Spanish government, or the banks alone.

“About the issue of finance help for bank recapitalization, today it's just a formal procedure. The important thing is the negotiation of the contract terms, the repayment period, the longer the better, and interest rates, the lower the better. The question about if help should go directly to the banks or to the state is still open.”

One financial analyst, Robert Halver of the Baader Bank, said eurozone officials need to act decisively resolve the governmental debt crisis, now in its third year.

“The summit next weekend has to to bring clear results. We have always said that, but now it really is 5 (minutes) to 12. We now need a master plan which steps have to be taken to tackle the problems. We not only need stronger (European) integration but it must be clear, the German position must be to let the ECB (European Central Bank) help with the rescue (of the euro). The bailout fund cannot do this alone.”

Meanwhile, the Fitch financial services company became third such firm to downgrade the credit standing of the island nation of Cyprus to “junk” status. An EU diplomat said Cyprus would first seek more than a $6 billion loan from Russia to help its banks, and then more aid from the eurozone.

Cypriot banks are heavily exposed to troubled purchases of government debt from nearby Greece.